South Korea has long been heralded as a hotbed for cryptocurrencies. Next to the U.S. Dollar, the second most traded currency for Bitcoin and other major coin systems has been the Korean Won. Korean government authorities have been perplexed by the new revolution, but they have resisted temptations to seriously curtail the industry’s level of momentum. Local lawmakers, however, have not been as accommodative as their Western brethren. Recent rules that took effect on January 30th required traders to register account transfers through a local bank, thereby thwarting the anonymity draw that is so popular among crypto enthusiasts.
The impact on crypto exchanges has been severe. According to one anonymous employee at a South Korean exchange: “Exchange profits are down 90% on what they were when the market was at its peak [in December 2017-January 2018]. The exchange industry as a whole invested a huge amount of money in technology, management and security systems in anticipation of market growth, but instead, many are now losing money and may eventually have to look to reducing the size of their workforces.”
Industry insiders are suggesting that the government should consider modifying the new rules. It is unclear if the intent was to block money laundering, get a handle on the movements of the Won, or appease local tax officials or bankers. The result is that, “Investors are becoming increasingly anxious,” and exchange operators are making plans for opening overseas outlets, although local bankers do not see relocations as providing any advantage to Korean domestic investors.”
Korean officials are also struggling with Initial Coin Offerings (ICOs). Min Byung-Doo, a member of the country’s governing Democratic party and the chairman of Korea’s National Policy Committee, has strongly pushed for the legalization of ICOs and improvement within the basic regulatory infrastructure designed to regulate the entire cryptocurrency sector. He encouraged the government to move forward by saying, “Regulation is not bad. Regulation is necessary, it is the only way to legitimize the market and allow investors to build trust towards the cryptocurrency market.”
The Financial Services Commission (FSC), the domestic regulator in South Korea, had recently blocked an ICO from proceeding that was backed by Kakao, the biggest Internet conglomerate in South Korea, commanding an 80 percent market share in its market territory. It subsequently went overseas with its plans.
Min iterated further that, “The government cannot dismiss ICO. It needs to allow companies to conduct ICO. ICO has become a new trend in the global market and it is the responsibility and ability of the government to embrace new technologies. We can see that the flow of investment is clearly changing compared to ICO and angel fundraising. The ICO has raised $1.7 billion for Telegram and $4 billion for Block.One. It is getting bigger and bigger.”
Favorable legislation is before the National Assembly, and investors within the local market are optimistic, thanks in part to the forward thinking of Chairman Min.